U.S. consumers use credit and debit cards to initiate billions of financial transactions with both online and brick-and-mortar merchants. Though largely unnoticed, numerous parties can play one or more roles in the processing, routing, authorizing, and settling stages of each financial transaction. In exchange for their services, these parties can collect fees either directly from the merchant or from other parties involved in the transaction. However, the cost of these fees may be ultimately borne by the merchant selling his goods or services. This cost, in turn, may be recovered through either higher prices for consumers or more sales.
For example, in a typical credit card transaction (or debit card transaction processed through a credit card network), in addition to the customer and the merchant, the parties responsible for routing payment information can include: (1) a merchant bank (the bank where the merchant's financial account is located); (2) an acquiring bank or merchant acquirer (a bank or entity that specializes in managing credit card transactions for merchants); (3) a credit card network (the communications network that connects issuing and acquiring banks, built by card associations such as AMEX®, MASTERCARD®, and VISA®); (4) a payment processing bank or entity (a bank or entity specializing in the routing and authorization of credit card transactions to issuing banks); and (5) the issuing bank (the company that issues the credit card to the consumer).
In a typical transaction, the consumer either swipes his or her credit card at one of the merchant's registers, otherwise known as the Point-of-Sale (“POS”), or, in the case of an online transaction, sends his or her credit card number, name, billing address, and/or other details of the transaction to the merchant through the Internet. Next, the merchant forwards the transaction details and card number to the merchant acquirer. The merchant acquirer then routes the transaction data and the request through the card association network to the payment processor. The payment processor then performs a variety of authorization tasks and security checks, including confirming available funds and/or card number validation on behalf of the issuing bank. Or, alternatively, the payment processor sends the transaction details to the issuing bank that performs some or all of the authorization and security checks on its own. Next, the issuing bank indicates to the payment processor whether or not the transaction is approved and that approval is routed back through the credit card network in order to notify the merchant acquirer. The merchant acquirer then notifies the merchant and, if approved, the merchant completes the sale to the consumer.
In order to collect the funds, the merchant sends a request to the merchant acquirer. The merchant acquirer forwards the request through the credit card network to the payment processor who similarly forwards the request to the issuing bank. Transactions are settled when the issuing bank pays the payment processor, the payment processor pays the merchant acquirer, and the merchant acquirer transfers the funds into the merchant bank account (less the various parties' fees for conducting the transaction). Lastly, the transaction shows up in the customer's credit card statement with a relatively brief and sometimes cryptic description of the transaction, and the customer pays the issuing bank the balance due at a later time. Alternatively, in the case of a debit card transaction processed through a credit card network, the balance is automatically debited from the consumer's financial account held by the issuing bank.
Presently, credit and debit cards are the most favored form of payment for purchases. However, as demonstrated above, the payment process is a relatively cumbersome one, involving numerous parties and providing little to the consumer in the form of a record of the details of the transaction. Additionally, the majority of the fees that are ultimately paid by the merchant result from the fees owed to the credit card companies in exchange for the use of their networks (“Interchange fees”). Interchange fees vary depending on the credit card company, but may cost the merchant approximately 2-3% on every sale.
As a result, it may be desirable to provide more simple payment processing systems and methods that reduce the transaction fees paid by merchants. Specifically, it may be desirable to facilitate merchant-to-consumer transactions without routing the transaction through one of the credit card company's networks, thereby avoiding Interchange fees.
Furthermore, it may be desirable to provide systems and methods that give consumers more control over their financial transactions. Specifically, it may be desirable to provide consumers with the ability to control when and/or where a particular payment method may be used and/or dictate the type of information and transaction details that are provided to their issuing bank by merchants and, optionally, the type of transaction details seen on the consumer's bank statements.